UK Officials Unveil Auto Enrollment Plan

December 12, 2006 (PLANSPONSOR.com) - As many as 10
million UK workers could be automatically enrolled into
personal accounts or workplace retirement savings plans under
a program announced Tuesday, in which employees could put
away a minimum of 8% of pay annually.

The plan, announced by
Work and Pensions Secretary John Hutton, provides that
employees who opt to remain enrolled have to set aside at
least 4% of pay that will be matched by a 3% employer
contribution.
Workers will get another 1% in the form of government tax
relief, according to the government. Employees can opt out
altogether.

Hutton proclaimed
in his announcement
that the proposal “will
kick start a new savings culture in the
UK
.” He said the government expects workers to put about
£8 billion annually into their retirement
nest eggs.

The plan is expected to
be introduced in 2012. Hutton said there would be a “choice
of funds for those who want it”, including socially
responsible and ethical offerings as well as a default
option for those who do not specify how they want their
money invested.

Employers can also auto enroll workers into their
existing retirement plan if it meets specified government
standards, Hutton said.

According to the announcement the
long-term costs for personal accounts will be in line
with those set out by the Pensions Commission of around
0.3% of funds under management. Finally, there will
beno transfers in and out of personal accounts and a
maximum annual contribution during the first year of
£10,000.

Public Reaction

The reforms have broadly met with enthusiasm from
campaigners and unions, according to a news report in the
British newspaper Guardian. TUC general secretary, Brendan
Barber, said: “Today’s proposals are to be warmly welcomed.
They are another important building block in a new pensions
settlement. Compulsory employer contributions are a major
gain for people at work.”

The charity Age Concern also welcomed the proposals.
Director general, Gordon Lishman, said: “Personal accounts
will offer a beacon of hope to millions of people
struggling to find their way through the pensions
wilderness.”

“The proposals put forward in this white paper are good
news for anyone without access to a decent occupational
pension, many of whom are women, and should finally make
pensions saving worthwhile for the majority,” he added.